Review of Industrial Organization
12: 145–170, 1997.
1997 Kluwer Academic Publishers. Printed in the Netherlands.
Price Leadership on the National Cheese Exchange
WILLARD F. MUELLER, BRUCE W. MARION and MAQBOOL H. SIAL
427 Lorch Street, Madison, WI 53706, U.S.A.
Abstract. The motivation and trading behavior of the leading cheese companies on the National
Cheese Exchange are examined. Although only 0.2 percent of all cheese is sold on the NCE, it is
used to formula-price 90-95 percent of the bulk cheese in the U.S. Kraft General Foods, the largest
buyer of cheese in the U.S., was the dominant seller on the NCE during 1988-1993, with the apparent
purpose and effect of depressing national cheese prices. Kraft’s behavior is consistent with that of a
barometric price leader that enjoys a signiﬁcant degree of discretion in shaping the pattern of prices
over a price cycle. As presently organized, the NCE facilitates market manipulation.
Key words: Price leadership, market manipulation, thin market, cheese prices, auction market,
The National Cheese Exchange (NCE) is a centralized auction market in Green
Bay, Wisconsin. Cheese manufacturers and marketers meet weekly for about 30
minutes to buy and sell carlots of bulk cheddar cheese to each other in 40 pound
blocks or 500 pound barrels.
NCE sales account for less than one percent of all
cheese made in the U.S. Each year about ﬁve sellers and ﬁve buyers make virtually
all cheese trades.
The tiny volume traded in this obscure market by a few traders belies the far-
reaching consequences of the prices that are established. NCE prices are used as
the reference prices in formula-pricing practically all bulk cheese sold by cheese
companies. The prices also are frequently used as the reference price in selling
private label and weakcompanybrands of ﬁnishednatural and processedcheeses to
food retailers, food service outlets, and industrial users. Finally, NCE prices largely
determine the price of ﬂuid milk used by cheese manufacturers and signiﬁcantly
inﬂuence the price of other dairy products.
Not surprisingly, prices determined by so few but affecting so many have been
frequent targets of criticism and questions. Yet the last in-depth examination of
The authors are Professor Emeritus and Professor, Department of Agricultural and Applied Eco-
nomics, University of Wisconsin-Madison; and Trade Practices Analyst, Wisconsin State Department
of Agriculture, Trade and Consumer Protection, respectively.
Barrel cheese is mainly used to make processed cheese products. Blocks are used mainly to make
cut and wrapped natural cheese. Barrels accounted for 68 percent of NCE sales during 1988–93. Sales
are in 40,000 pound carlots.